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Dow Sulks as Goldman Sachs Shows Big Trading Loss

Now that the debt ceiling and government shutdown issues have been resolved -- albeit temporarily -- the Dow Jones Industrial Average (DJINDICES: ^DJI  ) can concentrate on earnings reports again. This morning's third-quarter announcement from Goldman Sachs (NYSE: GS  ) did nothing to enhance its relatively new status on the index, showing a trading revenue loss of 44% year over year. Not surprisingly, Goldman is down nearly 2.5% this morning.

A tough time for big banks
Goldman's news stung JPMorgan Chase (NYSE: JPM  ) earlier this morning, and the big bank dipped into the red as well, though only by about 0.15%, before it began to rise. Although analysts expected Goldman, like its peers, to suffer from a decline in fixed income trading, investors took the news badly. Goldman managed to offset some of the loss with expense-cutting, however -- such as a 35% cut in compensation from last year.

JPMorgan also cut its compensation expenses in the third quarter, reporting a ratio of 28% compared to 33% in the year-ago quarter.

Along with its earnings report, Goldman offered its investors a consolation prize, of sorts: a $0.55-per-share dividend, 10% higher than previously. So far, investors don't seem very impressed.

A double whammy
For Goldman, some news regarding its commodities business and continuing regulatory scrutiny in that arena could be adding to its current distress. The Wall Street Journal reported late yesterday that the Federal Reserve is pondering a new fee on banks that own physical commodities-related assets, such as Goldman's metal storage warehouses.

The government would like to see big banks get out of the commodities business, but both Goldman and Morgan Stanley were granted a pass on this issue during the financial crisis, and putting financial pressure on them might cause them to voluntarily exit the trade. The fact that JPMorgan has, in response to regulatory concerns, put its own commodities business on the auction block may account for some of the positive movement in its stock this morning, as investors continue to digest all the news emanating from the big bank sector over the past week.

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Related Tickers

9/28/2016 5:27 PM
^DJI $18339.24 Up +110.94 +0.61%
GS $163.45 Up +0.56 +0.34%
Goldman Sachs CAPS Rating: ***
JPM $66.71 Up +0.35 +0.53%
JPMorgan Chase CAPS Rating: ****